Up in Smoke

Altria was the worst performing stock in the S&P 500 on the day, down 9.2%, and there's little wonder why.

Yesterday, the U.S. Food and Drug Administration announced plans to limit nicotine levels in cigarettes. Then today, The Wall Street Journal reported that the FDA would order Juul to take its e-cigarettes off the U.S. market. Altria paid more than $12 billion for a stake in Juul in 2018. That stake is now worth less than $2 billion, according to recent disclosures from Altria. And soon it could be worth even less. 

Here's more from my colleague Bill Alpert: 

Cowen tobacco analyst Vivien Azer wrote that she’d not anticipated a blanket denial by the FDA of Juul products. “This [report] clearly comes as a surprise to the market, and to us, as we had thought that JUUL could get limited approvals,” she wrote in a Wednesday note. Her rating on Altria is a Hold.

Under the FDA’s authority to regulate tobacco products, vape producers like Juul have had to apply for permission to continue marketing their products. The agency has until September to allow or deny those applications. It issued a blanket denial for the products of Blu, whose vapes can remain on the market while that company appeals. An appeal of an FDA marketing denial can take a year or more, said Azer.

Tuesday’s announcement of the FDA’s plan to limit nicotine in cigarettes was less of a surprise. The agency has been discussing the health benefits of limiting nicotine levels for five years, wrote Azer. Annual sales of cigarettes in the U.S. total $80 billion.

At Altria, cigarettes and cigars still account for about 85% of the $21 billion in revenue that analysts expect this year. Tobacco remains a very profitable business, and forecasts for Altria’s 2022 earnings are nearly $9 billion, or $4.86 a share, according to FactSet.

You can read the rest of Bill's story here.